EADS 2007 Loss Worse than Expected; Shares Fall

Reuters

Tuesday, 11 Mar 2008 | 1:15 PM ETReuters

SHARES

European aerospace group EADS reported a bigger-than-expected 2007 net loss, hit by delays on the Airbus A380 superjumbo and a weak dollar, but said it had turned the corner on recent industrial problems.

The 446 million euros ($685 million) loss compared with a slender 99 million euro profit in 2006, and was worse than an average market forecast of a 329 million euro loss.

"I am not happy with the 2007 figures but I believe their underlying strength will allow an improvement in performance as we move forward," Chief Executive Louis Gallois said on Tuesday.

Shares in the Airbus parent company fell on the results and on a challenge to its recent defense contract win in the United States from rival Boeing.

EADS shares closed 6.8 percent lower and were the worst performing stock on the Paris CAC-40, which ended higher by 1.3 percent.

"The key figures were once again influenced by a host of special effects. This is making EADS's earnings development harder and harder to forecast," Stefan Maichl, an analyst at German bank LBBW, said in a note.

EADS CEO on Earnings

Cost overruns on the A380 super jumbo and the strong euro hit profits at Airbus owner EADS. CEO Louis Gallois spoke to CNBC about the numbers.

EADS posted below-consensus operating profit of 52 million euros, down from 399 million euros in 2006.

Group revenue dipped to 39.1 billion euros from 39.434 billion, due mainly to the weaker U.S. currency.

Analysts had on average forecast a net loss of 329 million euros and an operating profit of 152 million euros on revenue of 39.278 billion, according to a Reuters poll.

EADS said it expected a recovery in 2008 and predicted an operating profit of 1.8 billion euros and revenue topping 40 billion euros, based on a euro at $1.45. The forecast is below a consensus of 2.1 billion for 2008, according to the poll.

"We have strong momentum. While we are optimistic, we remain prudent," Gallois told a news conference.

EADS defended the $35 billion contract it won with Northrop Grumman to provide aerial refuelling tankers to the U.S. Air Force. "We have the feeling that the process was very transparent and fair and professional," Gallois told a news conference on Tuesday.

The company said it was not worried about its cash position after higher-than-expected free cash generation of 3.4 billion euros brought its net cash surplus to 7 billion euros.

EADS, also facing delays to its A400M military heavylifter and NH90 naval helicopter, said it did not expect a "further material deterioration" in its main industrial programs.

It dug into reserves by proposing a stable dividend of 12 euro cents a share despite the net loss.

Shareholders awarded themselves the maximum allowable 2006 dividend of 12 cents at an annual meeting last year after feuding core shareholders failed to agree a figure. Tensions between French and German shareholders appeared to ease when the company's dual management structure was simplified in mid-2007.

Cash Surplus

The European company's 2007 earnings were hit by the second annual loss in a row at Airbus after production delays resulted in penalties to airlines and restructuring charges.

Airbus revenues rose slightly to 25.216 billion euros from 25.190 billion but the planemaker posted a 2007 loss of 881 million euros, also worse than man analysts had expected.

Finance Director Hans Peter Ring said EADS would step up hedging to cope with a strong euro, now near $1.54, but that currency movements would continue to create volatility.

EADS is in the forefront of European companies complaining about the impact of a strong euro on exports, with most of its products priced in dollars but accounted for in euros. Airbus suffered a negative dollar impact of 1.08 billion euros in 2007.

The 2007 figures met the company's own main forecast after EADS said with its 9-month figures in November that its full-year operating profit was expected to "roughly break even".

Airbus hopes to win 700 orders in 2008, half last year's record, and to deliver about 470 planes, up from 453 in 2007.

"Based on continued economic growth and comforted by a solid order book, despite the volatility of markets, the group believes in the continuation of a resilient commercial aircraft market and Airbus deliveries peaking in 2011-2012," it said.

EADS said the pricing of Airbus aircraft had deteriorated in 2007. It books revenues when planes are delivered, which can be several years after they are ordered, meaning some deliveries date back to contracts before a three-year boom in orders.

Airbus has said pricing on new contracts has been improving.

EADS said negotiations were continuing for factory sales with French, German and British preferred bidders and no binding contract had been reached.

EADS has been wrestling with industrial difficulties and a weak dollar despite a recent boom in mainly civil jet orders. EADS said it had doubled its order intake in 2007 to a record 137 billion euros, pushing its order book to 340 billion euros.

Record orders at the Paris air show triggered a slew of advance payments and financing for the unit which operates Britain's military satellites brought in another 1.1 billion.